Fleets must prepare for BiK payroll changes

March 18, 2025

By April 2026, all UK employers must payroll Benefits-in-Kind (BiK), bringing an end to the traditional P11D process. While this move promises a more transparent and modern approach to taxation, it introduces significant complexities that require urgent attention from fleet, HR and finance teams.

This is not just an administrative change but a fundamental shift in how benefits are managed and reported. Businesses that fail to prepare risk payroll errors, HMRC penalties, and employee confusion. Historically, BiKs have been reported annually using P11D forms or P46(Car) submissions, often relying on employees to pass tax details to HMRC. This system has long been inefficient and prone to mistakes.

From April 2026, benefits such as company cars and private medical insurance must be taxed in real-time via payroll, ensuring tax is deducted when salaries are paid. This change brings greater clarity but also adds complexity, particularly for salary sacrifice schemes, where interactions between gross pay, taxable benefits, and National Insurance contributions require careful handling.

Although the P11D form is being phased out, P11D(b) forms for reporting Class 1A National Insurance Contributions will still need to be submitted annually. Misunderstandings around this could create confusion, even among experienced payroll professionals.

The success of this transition depends heavily on technology. Many payroll systems are not yet equipped to manage BiK payrolling, meaning some businesses will need major software upgrades or even a complete overhaul.

Effective internal communication will also be crucial. Employees need to understand the impact on their take-home pay, particularly those using salary sacrifice schemes. If changes are not clearly explained, they could cause confusion or concern. HR teams should proactively inform employees about how BiK will be deducted, reassure them that no action is required on their part, and provide guidance well in advance.

Beyond compliance, this reform presents an opportunity for businesses to reassess their benefits strategy. Increased payroll integration allows for better cost management and more strategic reward offerings. Forward-thinking employers may use this shift to explore new benefits that align with both business priorities and employee expectations, such as electric vehicle salary sacrifice schemes and wellbeing allowances.

While April 2026 might seem far away, businesses should aim to have systems and processes in place well before then. Aiming for an Autumn deadline will allow time to test payroll systems and engage with providers and staff.

Payrolling BiKs is not optional, so 'grabbing the bull by the horns' may well be the best approach to fulfilling your obligations.